Here is a boring game that ended in a draw. The question I have is after blacks 7th move what is my best response.

Just been Browsing through My Caro-Kann book and 7... Nb6 is the line. Pannov-Botvinnik attack.

Then 8 Bb5+ Bd7

or 8 d5 Bg7

Under stategy it says black should play defensivly through the middle game, and wait for the end game when it will have have the advantage because of the superior pawn structure.

I've never played the Smith-Morra but 3...g6 strikes me as cowardly or if that's too harsh, boring and timid. 

To answer your question, I like 8.Nf3 Nc6 Bg5 which forces black to make a tough decision straight away.  Does he move f6 and accept the risks in order to back the bishop off?  Does he move Be7 making his earlier g6 move look unwise?  Or does he bring out his queen even though most potential landing squares end up helping you (Qa5 might be an exception but if I absolutely had to move her that's probably where I'd go and I'm not sure it's helpful to black regardless).

Is it just me or has black completely forsaken the idea that a win is within the realm of possibility?

Have you entered the upcoming Smith-Morra Gambit tournament?  I entered it despite having zero experience with it.  Should be fun.

Heres the way I decline the Smith Morra Gambit.

Chessgod, im not familiar with this gambit but after 3. D3 arnt u way behind in development? white can develop both his bishops and queen easily while you can only bring ur queen out but neither of ur bishops....  plus white has control of the center... atleast for now...

I can't enter the morra smith gambit because I'm already in a tournament and I'm not a premium member.

This is the continuation I like after doing some analysis 

8.Bc4 Nb6 9.Nf3 Nxc4 10.Qxc4 Bg7 11.Bg5 f6 

Chessgod, 3...d3 seems extremely unsound to my mind.  Why gift the pawn  when you can develop a piece or at a minimum order the pawn go down swinging by taking white's c-pawn with 3...dxc3? 

All you're accomplishing by moving d3 is gift wrapping a present and handing to white -- he get's to develop his bishop to a logical square, capturing material in the process.  Meanwhile, you've lost valuable time and like pvmike said, you are seriously behind in development.  I see no good coming from 3...d3. 

well it is the point of the gambit that black takes c3 pawn :D

white then develops bishop and leaves black confused (that is if black is not familiar with the gambit) 

we agreed on a draw